What the CEO of SME should know about the business model to profitably run his company?

Polish SME companies often have good products and services, but they lack business models that would allow them to generate an adequate level of profit from products or services they provide. As a result, they may lose their opportunity to grow.

In many industries, the presidents or owners of Polish companies face growing competitiveness of the environment – pressure of customers on prices, pressure of distributors on discounts, growing difficulty in reaching and retaining customers, and growing costs of running the business.

The typical problems of companies which grow “organically” encompass: 

    • Difficulties in determining priorities in current activities and expenses,

    • Costs increasing often faster than revenues, margins and profits,

    • Lack of clear offer differentiators leading to the price fight,

    • Frustration of employees, increase in staff rotation.

Companies that face competitive pressure often think that in order to maintain their pace of growth they need to react on all possible fronts – and yet they don’t have enough resources to do so. Polish SME companies often have good products and services, but they lack business models that would allow them to generate an adequate level of profit from the products or services they provide. As a result, they lose the chance of development.

Nowadays, company’s growth requires regular and structured discussion about key topics that contribute to company’s sustainable growth. This discussion starts with the business model.

What is a business model?

Simplifying the definition of Alex Osterwalder, the business model is the way in which the organization creates value for the market and derives profits from this value. The authors of the article “Transformative business model” published by Harvard Business Review Poland emphasize in turn that the business model reflects the most efficient way of distributing and using resources.

From these two definitions the most important goal of managing a business model emerges – profitable development of company based on the following key questions:

    • How do we create and deliver value for the market – what do we offer and how do we offer it?

    • Whom do we sell our offer to and how much we earn from it?

    • What activities do we run and what resources do we use to create our offer?

    • Where are the sources of our costs and revenues?

    • Which elements of our business model have the largest impact on the structure of costs and revenues in our company?

How to change a business model?

The winner of the Main Prize in the “Digital Champions 2017” competition in the “Digital Transformation” category – TIM S.A and its example shows how conscious change in the business model and choosing e-commerce as the dominant sales channel can significantly improve the company’s results.

 TIM S.A. as the first distributor of electrotechnical articles in Poland made its offer available online for both business and individual customers.

After years of distributions through wholesalers, the company decided that further improvements of sales and customer service processes would not protect them from price fights and loss of competitive advantages. The company decided to drastically change the business model and focus on online channels. This is how a unique business model emerged, which resulted in increased revenues and increased efficiency. The new business model was based on modern e-commerce technologies and high human competences, centralizing sales and transferring it to the internet.

This decision allowed the company to create a completely new value for the market – the widest offer in the industry, ready for shipment in 24 hours, with the possibility of returning goods up to 30 days. It was also a source of savings, because the company moved away largely from its current sales model, based on traditional channels.

 “Within four years of TIM’s presence in e-commerce, the share of this channel in the company’s sales revenues increased from 0 to 70%. The unit turnover of the company in 2012, the last before launching the e-store, amounted to PLN 342 million. We closed the previous year at PLN 615 million, which is an increase of 80% – stated in November 2017 Artur Piekarczyk, board member and director of trade at TIM SA. – We gain our clients all the time, attracting them not only with attractive prices, but also the choice and immediate availability of the assortment.”

Source: https://www.hurtownie-elektryczne.pl/nagroda-cyfrowa-transformacje/

The possibilities of new technologies constitute an important source of innovation in company’s business model and its’ possibilities to increase the efficiency, but they are not their only source.

In case of Hilti the innovation in the area of distribution and method of payment came from customer’s problems observation. Seeing that construction companies have a barrier to buy expensive construction tools that require extra effort when they break down and need to be repaired, Hilti offered to rent tools at a subscription fee and with full service. The advantage was mutual – for construction companies the benefit was that they did not have to invest their capital and for Hilti – a guarantee of regular revenues coming from subscription fees.

Source: https://www.slideshare.net/bmi-lab/hilti-holes-instead-of-hammers-business-model-innovation-explained.

Sources of transformation of the business model may come from its center, they may also come from the analysis of competitive environment and new trends. When working on the transformation of the business model the most important thing is the awareness that a change in one area may cause a change in other areas. What it implies is that we will have to re-calibrate the entire model. In the entire transformation process we have to bear in mind the most important thing – why we are doing it. The aim of transforming the business model is to increase its effectiveness – giving us a better basis for the company’s development and generating regular profits.

When to change?

An equally important issue as “how to transform” is the question of “when to transform.” In contemporary business reality our business model is not established once and for all. Every now and then there may be new factors in consumer behavior or competition that may require some kind of reaction from our side. On the other hand, this does not mean that we have to react to every market change and copy others.

In order to be able to assess whether a given impulse requires our strategic reaction our company needs a continuous discussion about its’ business model. Here is a list of basic questions that the company’s management and its managers should ask themselves on a regular basis:

    • Should the structure of our clients be changed to give us a chance for further development of

      revenues?

    • Does our segmentation properly reflect changes in the behavior and needs of customers?

    • Are our distribution channels optimally aligned to changes in customer purchasing behavior?

    • What new products / services should we start to produce / sell? How should we change our

      value offer to the market?

    • What new resources do we need for this?

    • How else can we charge the price for our offer?

The lack of regular review of our business model may finally lead us to a situation when our company will have to leave its’ current comfort zone. Taking into consideration the paste at which our competitive environment changes, the transition from success to failure may materialize surprisingly fast. Don’t let the changes catch you off guard.

 

About the author of the article:

Agnieszka Węglarz is an independent consultant, business strategist and practitioner in B2B as well as lecturer, speaker and blogger. She has over 20 years of professional experience working as a manager in both large corporations and SMEs, where she was responsible for strategy, marketing and business development. She worked for many renown polish and international brands in telco, IT, finance, food and beverages sectors, as well as in FMCG and media.

 Her area of expertise is business development in B2B, she works mainly with SME companies. She uses her long term executive experience and training expertise to assist companies and their managers in building their business development strategy through series of workshops. She specializes in business modelling, segmentation, value proposition, sales and marketing strategies and consultative selling.

 She runs a business blog on www.agnieszkaweglarz.com and her own YouTube channel – Biznes Ring by Agnieszka Węglarz. You can contact her by writing to: agnieszka.weglarz@g2m.biz.pl or by directly sending a message via LinkedIN.